Principal eyes huge pension potential

Principal Financial Group, the Iowa-based pension, insurance and asset management service provider, hopes to become a shareholder in China's pension business after gaining 12 years of experience in asset management in the country, said its senior executives.

The group has worked with State-owned China Construction Bank on the CCB-Principal Fund Management since 2005.

The joint venture was the sixth-largest fund management company in the country last year. China is Principal's third-largest market outside the United States in terms of profit.

Renee Schaaf, the group's senior vice-president, said that China's pension potential is enormous. It is estimated that it will increase five-fold over the next 10 years from around $20 billion to $100 billion. The growth will come from the development of enterprise annuity and voluntary retirement products.

"China has one of the fastest aging populations in the world, and this will put pressure on the government-run pension system," she said. "It is inevitable that individuals will need to take greater responsibility to prepare a nest egg for their retirement to ensure they have enough at retirement."

According to the Virginia-based Global Aging Institution, China's population of over 65-year-olds will grow from 10 percent in 2015 to 28 percent by 2050. This seismic shift will put an enormous fiscal strain on the government.

Schaaf said there are many growth points for the group to invest in projects related to the Belt and Road Initiative, and its branches in Southeast Asia have done well under the initiative.

Its partner, CCB, has been an active participant in the development of the Belt and Road Initiative, and there are opportunities for Principal to facilitate some of CCB's activities, not only helping the Chinese bank source for projects, but also navigate local regulations in the different markets involved in the initiative the company operates in.

The US company has a joint venture of asset management partnerships in Southeast Asia with CIMB Group Holdings Berhad－a Malaysian banking group headquartered in Kuala Lumpur, which may also benefit from cross-border mutual recognition schemes for asset management under the initiative.

"As China pledged to further open up in its financial service sector, we see opportunities for Principal to offer our overseas investment capabilities to Chinese investors, while offering our Chinese joint venture's expertise in China equity and fixed income to our clients outside of China," said Thomas Cheong, Principal's vice-president and head for North Asia.

Both CCB and Principal signed a strategic cooperation agreement to expand the relationship to other areas of asset management, pension development and the joint development of overseas market opportunities in 2016.

"The economic transition pushed by the Chinese government will gradually transfer the country from an export-driven manufacturing economy to an economy based on internal consumption, saving and investment," said Zhao Ying, a researcher at the institute of industrial economics of the Chinese Academy of Social Sciences in Beijing.